It seems that when transactions occur the outputs only get smaller and are never aggregated. There is no apparent way to combine multiple outputs into a single output. The problem I see with this is that eventually all bitcoin outputs will be so divided that it will become impractical to trade them.

For example, imagine a miner receiving thousands of small "fees" of a few dollars each. If the fee keeps growing, it could make it a money losing proposition for a miner to use a fee output that they received previously. The fee is currently around $17 for a simple transaction, so basically what that means is that any output of less than about 0.001 bitcoins is essentially worthless.

Does this foreshadow the death of bitcoin when all the outputs are eventually divided into impractically small amounts?

  • I think the fee is around 5$ for average transaction atm. bitcoinfees.earn.com. Or even half of that for a 2h delay. – croraf Nov 22 '17 at 15:23

A transaction can spend from multiple unspent outputs and create fewer outputs than were consumed. So it is is possible to aggregate UTXOs.

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A transaction can consume an "arbitrary" number of unspent transactions to reach the necessary value. However, each incoming transaction increases the size and therefore cost. Which might be an issue if you have a lot of very tiny unspent transactions.

Anyways, you could just sent all your funds to yourself to combine all your unspent transactions into a single one.

Regarding your example: Miners get paid the sum of all fees (and reward) in a single, the first, transaction of a block. No matter how many (small) fees there are in the block.

So, this is not the death of bitcoin. If it would be, bitcoin would probably already be dead.

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There is no apparent way to combine multiple outputs into a single output.

Most transactions have more than one input, so I believe that argument is false.

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